Century Communities, Inc.

Good afternoon, ladies and gentlemen, and welcome to the Century Communities, Inc. First Quarter 2025 Earnings Conference Call. At this time, all lines are in listen-only mode. Following the presentation, we will conduct a question and answer session. If at any time during this call you require immediate assistance, please press star zero for the operator. I would now like to turn the conference over to Tyler Langton, SVP of Investor Relations. Please go ahead.

Good afternoon. Thank you for joining us today for Century Communities' earnings conference call for the first quarter 2025. Before the call begins, I would like to remind everyone that certain statements made during this call may constitute forward-looking statements. These statements are based on management's current expectations and are subject to a number of risks and uncertainties that could cause actual results to differ materially from those described or implied in the forward-looking statements. Certain of these risks and uncertainties can be found under the heading risk factors in the company's latest 10-K as supplemented by our latest 10-Q and other SEC filings. We undertake no duty to update our forward-looking statements. Additionally, certain non-GAAP financial measures will be discussed on this conference call. The company's presentation of this information is not intended to be considered in isolation or as a substitute for the financial information presented in accordance with GAAP. Hosting the call today are Dale Franceskin, Executive Chairman, Rob Franceskin, Chief Executive Officer and President, and Scott Dixon, Chief Financial Officer. Following today's prepared remarks, we will open up the line for questions. With that, I'll turn the call over to Dale.

Thank you, Tyler, and good afternoon, everyone. Over the past few months, we have seen an increase in economic uncertainty, interest rate volatility, and eroding consumer confidence, which have contributed to a slower than typical spring selling season. Our absorption rate in the first quarter was weaker than we had expected heading into the year, as these economic concerns coupled with constraints on affordability have led to elongated sales cycles and caused some home buyers to pause. That said, we still firmly believe there is underlying demand for affordable new homes supported by solid demographic trends. Despite the current headwinds, our deliveries of 2,284 homes were only 3% below year-ago levels while our average sales price declined by approximately 1% on a year-over-year basis. During the quarter, We focused on balancing pace and price while managing our direct construction costs and incentive levels. As a result, we were able to maintain relatively stable home building gross margins of 20.1%, excluding purchase price accounting in the first quarter, which eased by only 80 basis points on a sequential basis. Our first quarter net new contracts totaled 2,692 homes, a 6% decline versus the healthy levels we saw in the year-ago quarter, and a 33% increase over first quarter 2023 levels. Our absorption pace averaged 2.8 in the first quarter of 2025 and increased sequentially in both February and March, likely benefiting from both seasonality and the decline in mortgage rates over much of the first quarter. So far in April, our absorption rate is trending below first quarter 2025. As we mentioned last quarter, given our lot pipeline and community count, we have the ability to grow our deliveries by approximately 10% annually over the next several years. That said, we are not focused on growth for the sake of growth alone, and we'll look to balance pace and price at the community level to optimize our returns. We continue to target our sales efforts and incentives on monetizing, completing, and completing combs while matching our start pace with our current and anticipated sales pace to maintain an appropriate level of spec inventory within our communities. I also wanted to briefly address the topic of tariffs. While the situation is obviously fluid at this time, we are not expecting to see any meaningful increase in our direct costs in the near term. The majority of the products that we purchase are either made in the U.S. or currently exempt from tariffs under the USMCA agreement. We also have price protection agreements with our preferred supplier partners for many of the non-commodity products that we purchase. and believe that with our relationships, we will be able to work with our suppliers to mitigate the impact of any potential increased costs that could occur throughout their supply chains. In closing, I want to highlight that Century was recently selected to Newsweek's list of America's most trustworthy companies for the third year in a row. We believe our inclusion on this list is a testament to the dedication of our team members and trade partners, which allows us to execute on our mission of consistently delivering a home for every dream, and we want to thank them for their efforts. I'll now turn the call over to Rob to discuss our operations and land position in more detail. Thank you, Dale, and good afternoon, everyone. As expected, our incentives on closed homes increased to approximately 900 basis points in the first quarter 2025, up from roughly 800 basis points in the fourth quarter 2024. Our incentives on new orders in the first quarter also averaged approximately 900 basis points. Looking forward, we continue to expect incentive levels to be the largest driver of changes to our gross margins in the near term, and anticipate second quarter incentives to increase by up to another 200 basis points due to the current conditions that are weighing on order activity. We had continued success in controlling our costs in the first quarter with both our direct construction and finished lot costs on the homes we delivered roughly flat on a sequential basis. On a year-over-year basis, our direct construction costs declined by 4%. During the first quarter, our cycle times remained at approximately four months, and we have not seen any impacts from immigration reform on our labor base so far. While we are performing well on the cost side, we are still taking actions to further streamline our cost structure. Given the slower than expected spring selling season in mid April, we made the difficult decision to right size our workforce along with implementing other cost savings programs to lower our fixed costs. The savings from these initiatives will flow through cost of home sales, SG&A, and financial services, and we would expect to see more of a benefit in the third and fourth quarters of this year compared to the second quarter. We ended the first quarter with a community count of 318. Up 26% on a year over year basis. While it is still early and also recognizing the 28% growth in our community count in 2024, we currently expect our year end 2025 community count to further increase in the mid single digit percentage range, which will provide a strong base to execute from over the next couple of years. In the first quarter, we started 2,211 homes, and similar to last quarter, continued our focus on maintaining an appropriate level of spec home inventory. Turning to land, we ended the first quarter with close to 80,000 owned and controlled lots, with our controlled lots accounting for 55% of our total lot count. Both our owned and total lot count have remained consistent since the third quarter of last year And we have contained to be disciplined on the land front and underwrite deals to current market assumptions. Before turning the call over to Scott, I want to provide an overview of our land strategy. While we are involved in land banking agreements in a handful of our current communities, our low risk land light business strategy is primarily based on what I would describe as more traditional option agreements with individual landowners and third party land developers that require lower levels of deposits and offer a greater transfer of risk. To highlight this point, At the end of the first quarter, our 43,000 controlled lots were secured by non-refundable deposits that totaled only $71 million. While there is clearly uncertainty in the market, we are proactively managing our costs, targeting incentives to drive incremental sales, remaining disciplined on starts at inventory levels, but still continuing to position the company for growth in the years ahead while mitigating risk. I'll now turn the call over to Scott to discuss our financial results in more detail. Thank you, Rob. In the first quarter of 2025, pretax income was $53 million, and net income was $39 million, or $1.26 per diluted share. Adjusted net income was $42 million, or $1.36 per diluted share. EBITDA for the quarter was $73 million, and adjusted EBITDA was 76 million. Home sales revenues for the first quarter were 884 million, down 4% versus the prior year quarter on lower deliveries and average sales price. Our first quarter average sales price of 387,000 decreased by 1% on a year-over-year basis, primarily due to a higher level of incentives. Our deliveries of 2,284 homes in the first quarter declined by 3% on a year-over-year basis, and were impacted by our decision to manage our starts at a lower level over the past two quarters, with elevated mortgage rates and economic uncertainty also weighing on order activity. For the second quarter 2025, we expect our deliveries to range from 2,300 to 2,500 homes, assuming an absorption pace similar to first quarter 2025 levels of 2.8. Looking out to the back half of the year, we would expect further sequential increases in our deliveries in both the third and fourth quarters of 2025. At quarter end, our backlog of sold homes was $1,258 valued at $521 million, with an average price of $414,000. While the average price of our first quarter backlog was above the average sales price of our first quarter deliveries, This difference is largely due to mix, including the percentage of century complete homes. In the first quarter, adjusted home building gross margin was 21.6 compared to 22.9 in the fourth quarter 2024. And gap home building gross margin was 19.9 versus 20.6 in the prior quarter. Additionally, purchase price accounting associated with our two acquisitions in 2024 reduced our first quarter 2025 gross margin by 20 basis points. We would expect purchase price accounting to have a similar impact on our home building gross margin in the second quarter of 2025. For the second quarter 2025, both our direct construction and finished lot costs should be roughly flat quarter over quarter as we continue to successfully manage our costs. However, we expect home building gross margin to ease on a sequential basis due to higher levels of incentives. SG&A as a percentage of home sales revenue was 13.7% in the first quarter. Assuming the midpoint of our full year home sales revenue guidance, which I'll detail shortly, we would expect our SG&A as a percent of home sales revenue to be roughly 12.5. Also, so that people can better model our SG&A, we would expect roughly 70% of our SG&A to be fixed and 30% variable for the full year 2025. For the second quarter 2025, we expect our SG&A as a percent of home sales revenue to be approximately 13.5%. Revenues from financial services were $18.5 million in the first quarter, and the business generated pre-tax income of $2.4 million. We would expect a similar margin profile from our financial services business for the remaining three quarters of this year. Our tax rate was 25% in the first quarter of 2025. We continue to expect our full year tax rate for 2025 to be in the range of 25% to 26% with the increase over our full year 2024 tax rate of 24.1%. primarily driven by a reduced number of homes expected to qualify for 45L credits. Our first quarter 2025 net home building debt to net capital ratio equaled 30.1% and compared the fourth quarter of 2024 levels of 27.4. Our home building debt to capital ratio equaled 32.4% in the first quarter and compared the fourth quarter 2024 levels of 30.3%. During the quarter, we increased our quarterly cash dividend by 12% to $0.29 per share and have consistently grown our dividend on an annual basis since its initiation in 2021. In the first quarter, we also repurchased 753,000 shares of our common stock for $56 million at an average share price of $73.76 or a 13% discount for our book value per share of $84.41. That's at the end of the first quarter. We ended the quarter with $2.6 billion in stockholders' equity and $788 million of liquidity. Additionally, in mid-April, we increased the capacity of our senior unsecured credit facility to $1 billion from $900 million. We also have no senior debt maturities until June of 2027, providing us ample flexibility with our leverage management. Turning to guidance. With the ongoing economic uncertainty, interest rate volatility, and declining consumer confidence impacting our order activity, we are reducing our full-year home delivery guidance to be in the range of 10,400 to 11,000 homes and home sales revenue to be in the range of 4 to 4.2 billion. our full year home delivery guidance assumes an average absorption rate of approximately 2.8 for the full year 2025. In closing, we are taking the necessary steps to address the headwinds facing the market, including reducing our costs, remaining disciplined on the land front, and maintaining appropriate level of spec home inventory by matching our start with our sales. At the same time, subject to market demand, we have the ability to grow our deliveries by approximately 10% annually over the next several years, given our lot pipeline, community count, and strong balance sheet. With that, I'll open the line for questions. Operator?